Fracking Litigation Update: Despite Successful Pre-trial Motions, Pennsylvania Jury Awards Multi-Million Dollar Verdict

While a recently-issued EPA draft report “did not find evidence that [fracking activities] have led to widespread … impacts on drinking water resources,”¹ cases alleging such contamination continue to percolate. One recent Pennsylvania case is illustrative. Ely v. Cabot Oil & Gas Corporation²—first filed back in 2009—resulted earlier this month in a US$4.2 million jury verdict.

The plaintiffs owned property or lived in Dimock Township, Susquehanna County, Pennsylvania. Cabot allegedly operated at least 62 gas wells in a nine-square-mile tract on and around plaintiffs’ land, and had executed oil and gas leases with the plaintiffs. The plaintiffs, who used groundwater for drinking and other household uses, alleged that Cabot’s fracking and operation of its wells contaminated their water supplies.³ They originally asserted claims for negligence, private nuisance, strict liability, breach of contract, fraudulent misrepresentation, and gross negligence, and claims under the Pennsylvania Hazardous Sites Cleanup Act and for medical monitoring trust funds.

Cabot was able to winnow most of the original claims, and settle with the bulk of the plaintiffs. In 2012, all but a handful of plaintiffs reached confidential settlements with Cabot.⁴ By early 2015, only claims for negligence and private nuisance had survived motions to dismiss and for summary judgment.⁵ The remaining plaintiffs were two families—the Elys and the Huberts—who lived on a property owned by Nolen Scott Ely.

Even for those claims that survived, the Court significantly restricted plaintiffs’ use of evidence at trial in several respects, for example:

• The court excluded nearly all of the opinions of one of plaintiffs’ causation experts as failing to meet the requirements of Daubert v. Merrell Dow Pharmaceuticals, Inc.⁶;

• Most of plaintiffs’ proposed exhibits were excluded from the trial--the Court limited the plaintiffs to 24 exhibits identified in their pretrial memorandum⁷; and

• Plaintiffs were precluded from referring to notices of violation or consent decrees between Cabot and the Pennsylvania Department of Environmental Protection relating to alleged groundwater contamination from Cabot’s drilling operations in the area.⁸

Further narrowing the jury’s eventual charge, two weeks into the trial the Court dismissed the negligence claim finding that the plaintiffs had not presented evidence that could establish the preinjury value of their property, a crucial issue. And the Court constrained the potential damages in the remaining private nuisance claim (the only remaining claim) to “inconvenience and discomfort” caused by the nuisance, a category which explicitly did not include mental and emotional discomfort or the cost to replace water.

Despite the narrowness of this charge, the jury still awarded each remaining plaintiff damages for the “inconvenience and discomfort” from the nuisance: US$50,000 each for the three Ely children and a Hubert family member, US$720,000 for each of the adult Huberts, and US$1.3 million for each of the adult Elys (a total of US$4.2 million). One can conclude that even in the absence of compelling evidence, there can be high risk in facing jury trials in cases alleging groundwater contamination. Oil and gas companies facing such situations would be well served to consider a few key points:

• Winnow claims through motions to dismiss. The results in the Dimock case highlight the importance of aggressively pursuing early dismissal and summary judgment strategies to narrow claims as much as possible before trial. Of course, in this case significantly reducing the number of claims still resulted in a substantial verdict. But absent Cabot’s success in winnowing the claims brought to trial, the outcome could well have been a larger jury award.

• Consider Lone Pine orders as case management tools. In a Lone Pine⁹ order, the court requires the plaintiffs to put forth prima facie evidence of certain elements of their claim, usually including the plaintiffs’ alleged exposure pathway and evidence of causation. The law regarding such orders, including whether they are available, varies by jurisdiction.¹⁰ Such orders can be useful in disposing of unmeritorious claims early on, in narrowing the issues, and in streamlining discovery. For those claims for which plaintiffs can meet this burden, Lone Pine orders can provide a useful starting point for settlement negotiations.

• Pursue early resolution where reasonable. Cabot was able to settle with most of the plaintiffs, but only after almost three years of litigation. With the benefit of hindsight, Cabot’s success in resolving most of the plaintiffs’ claims likely saved it from a larger verdict (though the settlements with the other plaintiffs are not public). While Cabot was unable to reach an agreement with the Ely and Hubert families, oil and gas companies facing this sort of litigation should consider the possibility of verdicts such as this one in their realistic assessments of the expected costs of going to trial.

• Monitor forthcoming EPA actions. Although already widely considered the most comprehensive study to date of fracking’s potential impacts on groundwater resources, the EPA study is not yet final. The EPA’s Science Advisory Board (SAB)—an independent committee set up to provide peer review and technical advice to the EPA—offered comments on the draft study in the first quarter of 2016¹¹, which both sides of the fracking debate claim reason to cheer. Of particular note in this context, the SAB explicitly recommended that EPA include additional findings and data regarding Dimock, Pennsylvania and other “high-visibility” areas “where hydraulic fracturing activities are perceived by many members of the public to have caused significant local impacts to drinking water resources.”¹² Existing and potential parties to litigation in those “high visibility” geographic areas will be particularly interested in EPA’s response to this recommendation of the SAB. Moreover, there are sure to be further developments in the Ely case itself. Cabot has indicated that it will seek to set aside the verdict based on lack of evidence and on the conduct of the plaintiffs’ counsel during the trial.

• Consider emerging operational technologies which may help to clarify or dispel later claims of groundwater contamination. One emerging technology which already has operational utility is micro-seismic mapping, which can create 4-D maps of the extent of underground fractures. This technology can potentially be used to delineate precisely and reliably where underground fractures did and did not occur in relation to the location of groundwater sources. This type of evidence could help strengthen early summary judgment motions by offering affirmative proof of the lack of a connection between oil and gas operations and the alleged contamination of groundwater. This technology may be especially valuable for operations in areas the EPA study has identified as presenting a higher risk, for example fracking in or near older oil and gas wells, or at shallower depths where there is less vertical distance between the groundwater and the top of a shale formation.¹³

• Conduct a comprehensive litigation risk assessment. With a relatively modest investment of time and energy, companies can get a handle on litigation risks from existing and proposed hydraulic fracturing operations. An analysis of the fact patterns and theories on which lawsuits might be based, as well as the scientific uncertainties that might be raised in litigation, can put rough expected values on those risks. In addition to forecasting risks, such assessments provide opportunities to think comprehensively and creatively about mitigation options to proactively manage those risks.

The Ely case illustrates that even where a claim of groundwater contamination seems like a long shot, the realities of public perception, manifested through jury trials, underscore the possibility of a substantial verdict. For more information on ongoing fracking-related litigation across the country, visit Arnold & Porter’s Hydraulic Fracturing Case Chart.